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Fighting Financial Crime in Banking: Top Trends to Watch


Fighting Financial Crime in Banking: Top Trends to Watch

Fraud and financial crimes have been in existence since the introduction of currency. For each step forward made in banking and financial management, criminals, too, find a way to adapt and

In 2021, American consumers lost $5.8 billion to fraudulent activities, an increase of 20% over 2020. Fortunately, 2022 will bring some much-needed advancements in cybersecurity and regulatory compliance to protect consumer’s hard-earned money.

Here are some of the top trends to watch as banks and governments fight financial crime.

Enhanced KYC and UBO Regulation

One of the most notable security improvements over the past year has been enhanced regulatory, and enforcement surrounding Know Your Customer (KYC) and Ultimate Business Owner (UBO) compliance. In 2020, the Anti-Money Laundering (AML) Act was passed, creating harsh fines and penalties for banks that don’t comply. This development is increasingly important as digital and online-only banks, FinTech, and international transactions take the

The premise of KYC and UBO regulation falls under Customer Due Diligence (CDD) rules. The goal is to identify and confirm the validity of account owners through the onboarding process when an account is opened. Elements like proof of address, tax documents, government-issued ID, business registration paperwork, etc., are all a part of CDD. Many banks are being called to incorporate Enhanced Due Diligence (EDD) efforts as well when risks are detected.
In 2021, Rabobank was forced to forfeit EUR 500,000 in non-compliance penalties for failing to meet the regulations of the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act. It’s
expected these forfeitures will become more commonplace as enforcement increases.

Implementing Better Analytics

Due to the regulations put in place, many financial institutions are being forced to re-evaluate their existing fraud detection systems. There’s a significant shift toward implementing better analytics. Tools like Xceed for financial crime and compliance coverage are being implemented for real-time suspicious activity monitoring and behavior analytics.

Advancements in machine learning allow AI-driven programs to monitor accounts and adapt based on consumer behavior. These advancements help reduce false positives while flagging and stopping suspicious activity while an investigation commences. This form of data processing also contributes to better transparency and communication between financial institutions.

Improved Transparency Between Banks

The Financial Action Task Force (FATF) has put out a plea to large financial institutions and banks to voluntarily share information to help combat terrorism and money laundering. Many banks are facing the same challenges. However, the business-centric approach to keeping information away from the competition has created loopholes and coverage gaps for financial criminals to capitalize on. By sharing information, banks and governments can help prevent
financial criminals from taking advantage of these lapses.

While the FinCEN Exchange in the US was introduced in 2017, adoption has been slow. In 2021, many global regulatory bodies pushed banking organizations to voluntarily partake in these information-sharing programs. It’s expected that those who refuse will endure additional regulatory and compliance measures in the future.

Enhanced Crypto Regulation

Cryptocurrency typically flies under the radar when it comes to regulation. However, this decentralized currency is a leading source of fraud and money laundering. By the end of 2022, cryptocurrency exchanges in the US will be upheld to the same standards as banks in terms of the AML act. This change means that all exchanges must perform CDD and adhere to KYC protocols.

Investigating PPP Fraud

The distribution of pandemic relief funds for businesses has come to an end. Now, the work of identifying fraudulent transactions and finding those responsible begins. It’s estimated that 10% of PPP funds collected were fraudulent, amounting to $80 billion.
Fraudsters created businesses to collect the money, lied about how many people they employed, and took advantage of the minimal checks and balances throughout the application process. While full-scale investigations have been launched, experts expect it will take years to complete.

Increased Needs for Analysts

One of the burgeoning trends of 2022, which is expected to develop in coming years, is the increased need for analysts and specialists in financial crime detection. Many banks are navigating international sanctions in light of the Ukraine-Russia conflict while also balancing
updated regulatory and increased fraud activity.

Not only are banks struggling to find subject-matter experts in these areas, but few exist as the need for those trained in AML software and detection is relatively new. This increased need will lead to more gaps for financial criminals to capitalize upon.

Financial crime will never truly disappear. However, with improved technology, transparency, and dedication, banks can help minimize the negative global impacts of financial crime.